Friday, November 12, 2004

Social Security Reforms Getting Press

Laurence J. Kotlikoff, chair of the BU Economics dept, has an article in the Post today outlining a simple (sounding) 3 step plan to revamping the social security system.

  1. Replace the payroll tax with a retail sales tax. This shifts the tax-burden from a wages-only basis to an all-income basis which means it should be less regressive in the long-run.
  2. Phase out current Social Security system. I.e., eliminate it for those not already retired or close to it.
  3. Institute mandatory savings account that are invested in global indices.

It makes a lot of sense which means that it would probably never fly. I'd also be concerned about adding a new tax. The payroll tax would have to be abolished first because I think there would be a real danger that otherwise both would end up sticking.

Edward Prescott, winner of the 2004 Nobel Prize in Economics, also writes on SS reform in the WSJ. He also favors individual accounts. Here are some interesting quotes:

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